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U.S. Expat Challenges FATCA

The complaint alleges the reporting requirements breach E.U. data protection and privacy rights.

A U.S.-born British citizen is challenging the Foreign Account Tax Compliance Act (FATCA), alleging that the reporting requirements are in breach of U.K. citizens’ data protection and privacy rights under the European Union (E.U.)’s General Data Protection Regulation (GDPR). FATCA is a 2010 U.S. federal law that requires all non-U.S. foreign financial institutions to report information about U.S. taxpayers to the Internal Revenue Service.

The Complaint

The individual filing the complaint says she wasn’t aware of FATCA until she received a letter from her U.K. bank advising her that she may have U.S. tax obligations and that it was going to send her information to the IRS. She also says she’s exempt from paying U.S. taxes under the IRS’ Foreign Earned Income Exclusion because her income falls below the up to $104,000 allowed exclusion amount. Nonetheless, her lawyers at Mishcon de Reya are arguing that under FATCA, U.S. citizens can’t decide whether they want their personal information shared with the U.S. tax authorities (even if, as in this case, the individual doesn’t owe any U.S. taxes), which breaches the E.U.’s GDPR laws and puts them at risk of identity theft. According to Filippo Noseda, a partner at Mischcon de Reya and one of the lawyers on the case, the European Court of Justice has ruled, in a separate case, that transferring vast amounts of financial and personal data to a non-European Economic Area country without appropriate safeguards is illegal.

In a statement, Noseda explains that the implementation of FATCA in the U.K. was “rushed through against the advice of the European data protection authorities and even concerns raised by the European Commission.” He adds that the recent widespread data hack in Bulgaria and the Organisation for Economic Co-operation and Development admission that the data stolen included data transferred between tax authorities under a system derived from FATCA, shows the importance of raising the issues at hand.

Though the lawyers acknowledge that their client has no problem with “measures to fight crime and tax evasion,” they argue that such objectives are being pursued through “disproportionate – and unnecessary – means.” 

Prior Challenges to FATCA

This isn’t the first time FATCA has been challenged by U.S. expats on grounds of its disproportionate burden on U.S. taxpayers (and financial institutions) abroad. Not to mention, many of these expats are also saddled with hefty accounting and legal fees just to confirm to U.S. tax authorities that they’re compliant under the laws.

In a lawsuit earlier this year, the Association of Accidental Americans (“accidental Americans” is a term used to refer to those E.U. citizens who only spent a few months or years in the United States, acquired U.S. citizenship solely because their parents were U.S. citizens or who weren’t even aware they hold U.S. citizenship) in France filed an anti-discrimination lawsuit against several French banks, alleging that they’re being denied banking services because of their complex tax status and the burdensome reporting requirements on the banks as a result. Though the lawsuit proved unsuccessful, the Association is now raising the issue before the European Commission later this month.

In addition, U.S. expats are surrendering their U.S. citizenship in unprecedented numbers as a result of the reporting requirements. The IRS has taken notice, and is now offering tax relief to certain qualifying individuals who’ve relinquished their U.S. citizenship.

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